Psychology: The Meta-Game of Trading

Tino from TradersReality.com writes about the psychology of a trader. In this post for TraderLife, he introduces the concept of the Meta-Game of Trading, and why he believes it's the key to consistent profits...

How to become profitable in trading? It’s probably the first thing that anyone aspiring to become a trader asks themselves, then heads over to twitter or the Internet to find the answer.

Most of the time, aspiring traders look for a quick fix. Or they like to copy trades. But let’s take a closer look…

How Do We Become Profitable?

I guess like with anything, if you want to learn about something you gather all the information you can. Most of the time, you fall into the trap of thinking I will go on Google and download every book, pay for as many courses as I can, then hopefully I will have what I need in order to become a successful trader. Damn, if only it was that simple.

Like me, I was the above. I spent the best part of five years going to seminars, reading books, paying for tuition, buying courses. You name it, I did it. But did it help me towards becoming consistent? Part yes, part no. “Yes” because I educated myself on how the market worked, “no” because I didn’t pay enough attention to my own psychology.

The Stages Of Development

With all the courses I paid for and all the books I read, I still felt something was missing. See, the average aspiring trader usually falls into the trap of believing that you must find a system that will make you money and apply it to your desired market and repeat.

So the new trader will go on the quest to finding the holy grail. What usually happens, the trader then finds himself with several approaches and then starts to test each one. The problem here is the trader, most of the time, sees if the system can make money from its first few trades. They do not consider that a decent sample size is required. They fail to give the system a chance to succeed, because their motives are to find a “quick rich” strategy so they can claim the title “Trader”.

But what the aspiring trader does not realise is trading is about studying, development and progression. It is no different to a character in the World Of War Craft game. You start off as a Level 1 and you increase your character's abilities through various missions and upgrades on the way.

Trading is the same. Your trading character starts off at Level 1. The beauty of trading is you will never stop increasing your ability. There is no cap to leveling up. Every day you learn something new about the market and, more importantly, yourself.

Realisations

If the aspiring trader comes to realise that the system is not the problem and that it’s their mindset, then a whole new concept of study is introduced. The game of trading, 90% of the time, is overcoming the mental obstacles that occur during your trading day.

Hands down, trading has pushed me to levels of exhaustion, depression, anxiety, regret, guilt. Everything you could think of, I have experienced it in trading. The brutal truth is, if you cannot with stand the psychological challenges that come with trading, then trading is not for you.

You have to come to an awareness that if you are to succeed in this profession, then serious consideration to mastering your own psychology is required. It was five years before I started to look at my psychology. I wasted those five years jumping from system to system not selecting one system and mastering it.

Consistency

Everyone wants to be consistent in trading. Too many are focusing on consistency and not focusing on the process of becoming consistent. The end result is what many new and aspiring traders seek. The process and the sacrifices required in order to become consistent is usually what makes most new traders quit.

I will sell you the dream that if you: keep your losses small, trade small, trade with no emotions, set stop losses etc, your quest and goal to consistency will be achieved. These trading “truths” are important and must be applied. However trading is deeper than that.

You need to have dedication. You need to be resilient. You must be disciplined. You must be realistic. You must approach your trading systematically and objectively. Keeping your “losses” small is the obvious requirement that you must apply when you trade. It’s like when you drive a car, do you use your brakes to stop the car? There is no massive psychological demand to do so. To stop your car, use the brakes. Trading is just like that. You have a stop loss. Use it and let it play out. It’s there for your protection.

The Meta-Game

The same advice is always given to traders. Preserve your capital, trade well, journal your trades. Now I am not saying to dismiss the above, however trading is all about the Meta-Game.

The Meta-Game is the area of thought that takes many years to realise and master. Not to say that it cannot be achieved sooner, it all depends on your level of thinking and your relationship with your psychology.

Like poker, the Meta-Game involved is not about the cards that you are dealt with, it’s about the cards you want your opponent to think you have. This is the same with trading. Your objective is to create a thinking process that allows you to react when required and execute with no expectation and focus on the current moment.

Trading is a mind game. No different to chess. Your opponent (YOUR MIND) is against you and for you. Your job as a trader is to instruct it to respond accordingly to circumstances that arise. In other words, you tell your mind to place a trade and you tell it to set a stop loss. Anything that deviates away from this, then you are having the battle that leads to why 90% of those involved in this game of trading feel the pressures of trading and lose.

So, what is the only way to become profitable? In my opinion, you can take any basic strategy and make money from it, only if your mindset allows you to. Even something simple like a MA cross over strategy. You do not need to complicate things in order to become consistent in trading. Less is really more.

I advise that aspiring traders look at their psychology. Your mind makes the decisions, not your strategy. The market may give you signals, but it’s on you to react to those signals. If I had my time again, I would have read everything on trading psychology before I even considered what a moving average was.

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